Wilshire Real Estate Investment Trust Reports Second Quarter Funds From Operations of $2.1 Million, or $0.18 Per Share
PORTLAND, Ore.--(BUSINESS WIRE)--Aug. 16, 1999--
Will Seek Not to Elect REIT Status to
Take Advantage of Substantial Net Operating Loss Carryforwards
Wilshire Real Estate Investment Trust Inc. (Nasdaq: WREI) a
hybrid REIT specializing in diversified real estate investments, today
reported funds from operations of $2.1 million, or $0.18 per share,
for its second quarter ended June 30, 1999.
Excluding $11.3 million of impairment losses related to the
Company's portfolio of mortgage backed securities (MBS), net income
for the quarter was $0.8 million, or $0.07 per share. Including the
impairment losses, reported net loss for the period was $10.5 million,
or $(0.91) per diluted share. The impairment recognized in the quarter
relates to a portion of the Company's MBS portfolio that experienced
unprecedented prepayments as a result of the "flight to quality" in
the third and fourth quarters of 1998 and the subsequent decline in
mortgage rates. Nearly $5.9 million of other-than-temporary impairment
of these assets was recognized in the third and fourth quarters of
1998, while the remaining $11.3 million carrying value of these assets
was reflected as a reduction to shareholders' equity at Dec. 31, 1998,
pending the sale or other valuation determination of the assets. As a
result, the impairment losses reported for the second quarter of 1999
did not have an impact on shareholders' equity during the period.
Book value per share as of June 30, 1999 was $6.39. The ratio of
total debt to equity was 2.94-to-1 at June 30, 1999, versus 3.95-to-1
at Dec. 31, 1998, reflecting the Company's substantial progress in
reducing leverage and exposure to short-term borrowing risk.
The Company also announced that it intends to solicit shareholder
approval to amend its charter such that the Company could elect not to
be taxed as a REIT, positioning the Company to take advantage of in
excess of $65 million of net operating loss carryforwards incurred
during 1998 and 1999. Also contingent upon shareholder approval, the
Company would change its name to Wilshire Real Estate Investment
Corporation.
"We continue to generate positive cash flow and positive FFO
while de-levering the Company and reducing our borrowing risk," said
Andrew Wiederhorn, chairman and chief executive officer. "The
impairment losses recognized during the quarter are essentially
definitive recognition of the impairment implied by the reductions to
shareholders' equity taken at the end of 1998. As the unprecedented
levels of prepayments continued to impact these securities in the
second quarter of 1999, and although it is possible we may recover
some of the value of these securities, we are recognizing what we
believe will be the last of our impairment losses in the second
quarter.
"Our liquidity has continued to improve throughout 1999, and we
are better positioned than at any time in our brief history to respond
to or even exploit material changes in market conditions. Although our
commitments to lenders must come first, we expect to pay the
previously declared third quarter 1998 dividend, plus accrued
interest, by year-end. In addition, as previously announced and
approved by the board of directors, the Company is authorized to
repurchase its common stock, liquidity permitting, so long as such
repurchases represent a compelling value to current shareholders."
Wiederhorn continued, "Our business plan going forward continues
to be focused on returning to the acquisition of loans and securities
during the current year and, consistent with our intention not to
elect REIT status, to decrease our position in commercial operating
properties. Reducing our presence in real estate provides two distinct
benefits. First, it reduces depreciation expense, increases reported
pretax income and maximizes utilization of our tax benefit. Second,
the proceeds from the sale of certain real estate properties allows us
to pay down some higher cost borrowings. Most of our properties are
substantially or entirely occupied and as a result we have found both
the speed and terms of transactions to be satisfactory. Also, in
consultation with our financial advisor, the Company continues to
evaluate its investment in Wilshire Financial Services Group."
"As one source of future funding, we are evaluating the issuance
of securities backed by certain of our mortgage backed securities
(MBS) to match-fund a portion of our MBS portfolio and provide capital
for acquisition activity. To be eligible for securitization,
securities are evaluated based on seasoning and prepayment, among
other factors. More prepayment and more seasoning is generally
favorable for non-residual interests, which comprised approximately
80% of the carrying value of the Company's MBS portfolio."
Wiederhorn concluded, "As we continue to reposition the balance
sheet toward higher ROE assets and match funded borrowings, and as we
continue to pay down higher cost debt incurred for liquidity needs
brought on by the market turmoil of 1998, we expect continued
improvement in financial performance."
Transaction Activity
In June 1999, the Company sold a commercial warehouse located in
Salem, Oregon for net proceeds of approximately $7.4 million. The sale
closed on July 1 and the gain on sale of approximately $0.2 million
will be recognized during the quarter ending September 30, 1999. In
addition, in mid-August the Company sold a property located in Eugene,
Oregon, which will result in a gain-on-sale to be recognized in the
third quarter. In all cases proceeds from the sales of properties are
being used to pay down higher cost borrowings. The Company is
currently in the process of marketing other commercial properties for
sale during the third quarter, and management expects net proceeds to
approximate or exceed the carrying values of such properties.
During the quarter, the Company also sold mortgage-backed
securities with a carrying value of $26.6 million, which resulted in a
loss of $900,000. Subsequent to the end of the quarter, the Company
sold a mortgage-backed security for its June 30, 1999 carrying value
of $2.8 million. The Company had recorded a $1.9 million impairment on
this security during the quarter ended June 30, 1999, based on higher
than expected loss severities on delinquent loans in the security.
As previously reported, during the quarter the Company sold a
loan held for sale secured by commercial properties in the United
Kingdom with a carrying value of approximately $47.9 million as of
March 31, 1999. As a result of this sale, the Company reversed $3.9
million of a valuation allowance reflected in the financial statements
for the quarter ended March 31, 1999.
Liquidity and Capital Resources
At June 30, 1999, the Company had cash and cash equivalents of
$9.2 million, compared with $4.8 million at Dec. 31, 1998. The ratio
of all liabilities (including accounts payable and dividends payable)
to equity was 3.04-to-1 at quarter-end, as compared to 4.26-to-1 at
Dec. 31, 1998. The Company had total consolidated secured indebtedness
at June 30, 1998 of $216.3 million, as well as $2.8 million of other
liabilities. This consolidated indebtedness consisted of (i) $119.3
million of repurchase agreements, (ii) lines of credit aggregating
$41.2 million, which are secured by loans and securities and (iii)
$55.9 million of other borrowings which mature between 1999 and 2008,
which are secured by real estate.
Interest income for the quarter was $6.3 million and net interest
income was $2.9 million, generated primarily from investments in
mortgage-backed securities and mortgage loans. Gross rental income
from operating properties totaled approximately $1.9 million for the
quarter. The Company also recorded a $300,000 provision for losses on
the anticipated sale of a property. |
